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Bull of the Day: Pool Corporation (POOL)

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The Coronavirus pandemic has decimated many industries. Almost every US business that depends on in-person transactions has seen a reduction in revenues and many firms in the travel and leisure industries have been either entirely closed or are limping along with skeleton crews – and just trying to keep the doors open for a potential reopening.

Fortunately, there have also been some businesses that have seen surprising benefits from the upheaval of shelter-in-place orders and fear of infections – and often in industries that no one might have reasonably guessed when this crisis started earlier in 2020.

For instance, the swimming pool business is absolutely booming!

With more than 10 million Americans unemployed and many small businesses struggling, building a swimming pool might seem like an unobtainable luxury item for many people, but businesses that install and maintain backyard pools have actually been seeing a huge uptick in activity.

With temperatures rising and many beaches and public swimming facilities closed or operating with significant restrictions in place, Americans are increasingly looking to have their own private place to swim with their families. Though scientific information about the Coronavirus remains incomplete, it is widely believed that – like pretty much every other known virus – it doesn’t survive well in an environment of sunshine and chlorinated water.

Anecdotally, pool builders who might typically install 20-30 pools in an average year reporting hundreds or even thousands of quote requests. Many homeowners who don’t want to wait months or longer for an in-ground, concrete installation are purchasing relatively inexpensive above-ground pools to get the family swimming as soon as possible.

In addition to safe recreational opportunities, all of those would-be backyard bathers are likely about to get another surprise – pools cost a lot of money to buy, repair and maintain. There’s the ongoing expense of chemicals and supplies to maintain sanitary conditions, plus the mechanical equipment necessary to circulate, filter and heat the water needs fairly regular service and replacement. Chlorinated – and sometimes salinated – water is not a hospitable environment for machines.

If you don’t adequately maintain a pool, nature quickly transforms it from it from a beautiful oasis to a murky and unhealthy swamp. It’s also not generally a viable option to remove a pool once it’s installed, even if you decide you don’t want it anymore. The money spent on ongoing maintenance is basically a perpetual annuity for suppliers.

New construction also provides big revenues. A basic set of equipment for a backyard pool – frequently referred to in the industry as a “pad” because of the flat concrete panels it’s generally installed on – starts at about $5,000 and can easily grow to 3-4 times that amount if the customers add higher technology features like salt-water chlorination and internet-based smartphone controls.

Louisiana-based PoolCorp (POOL - Free Report) is the world’s largest wholesale distributor of products for the construction, maintenance and repair of swimming pools. After a brief drop-off at the beginning of the crisis in the US, revenues have been soaring lately. With almost 400 outlets all over the country, virtually every contractor and pool service professional buys parts and supplies from the company.

There are smaller regional outfits that compete with PoolCorp in some locations, but on a national scale, POOL enjoys something close to a natural monopoly. Their sheer size affords significant economies of scale and allows them to offer customers an enormous selection that includes parts and supplies on demand to get their customers back in a safe swimming environment as quickly as possible

With annual revenues over $3 billion, PoolCorp is in the enviable position of enjoying the ongoing sales associated with pool maintenance as well as a big bump during periods like now when construction and installation are on the rise. They sell everything necessary to create a new pool, everything to maintain it - and even rafts and foam noodles to enjoy while you’re in it.

Unlike software and technology companies that can scale up immediately in the face of increased demand, there’s a natural limit to the amount of physical assets a company like PoolCorp can physically deliver to customers, but what the company lacks in huge growth potential in any given period, it makes up in relentless consistency.

Quarter after quarter and year after year, revenues and earnings continue to grow at high-single digit rates. It’s the kind of solid performer that doesn’t tend to get a lot of headline news coverage during normal conditions but also has the potential to see strong revenue growth during periods (like the present) when things really fall into place. With estimates rising over the past 60 days, POOL currently enjoys a Zacks Rank #1 (Strong Buy).

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